About George Thoreson
Hello, I am a fundamental, bottom-up, value investor and enjoy investing. I’ve been investing and studying investing since 1975. I started investing after receiving a Bachelor of Science Degree from Penn State University and then starting my career. My interest in business led me to evening classes and a Masters in Business Administration from Clarion University. Later I attended Dr. George Athanassakos’ excellent Executive Value Course at the Ben Graham Centre for Value Investing at The University of Western Ontario. In the meantime I read as much as I can to better understand how the most successful “value investors” apply their trade. Investing is a continuous learning process.
My business career progressed reasonably well with a large corporation and included roles in economics, planning, operations, technology, and business development. This real world business experience provides some useful insights that help in investing. Somewhere along the way it occurred to me that it would be better to have my money working for me rather than me working for my money. So we put together what we called the “freedom plan.” It consisted of saving and investing so I could “retire” early, at fifty years old, which I did. I define “retirement” as doing what I want to do rather than what others want me to do. It is a lot more fun and rewarding and for me includes among other things spending more time on investing.
My investing “career” did not go so smoothly. When in business school the Efficient Market Theory (EMT) was popular and still is surprisingly prevalent. This theory assumes information about a company or investment is available to all investors and immediately reflected in the stock’s price. The average investor cannot “beat the market” because the stock price changes immediately to reflect the good or bad news that everybody already knows. It holds that you cannot buy or sell stock at an advantage because the market is so efficient. It took more time than I care to admit before I gave up on the Efficient Market Theory (EMT) and other investing theories and began to have success investing with value investing.
The share price of a company on any given day often has nothing to do with the underlying value of the company the shares represent. So, value investing is about finding investments that are “on sale,” that is, priced in the market below the actual or intrinsic value of the company. The distinction is: price is what you pay and value is what you get. Companies that are “on sale” below their intrinsic value provide a buffer or margin against potential loss; a “margin of safety”. If we buy the shares on sale, then as owners of a portion of the more valuable underlying company, we just have to patiently wait until the share price catches back up to reflect the underlying value.
Searching for value leads to interesting companies that sell below their value for many possible reasons. They include companies out of favor, ignored or in a special situation and they can be of any size. Historical evidence presented by Tweedy, Browne Company, LLC for one, other studies, and my own experience show that companies with the highest rate of appreciation potential are companies selling below their intrinsic value. The key is understanding the intrinsic value and that’s where the work comes in; determining the company’s intrinsic value.
Three Lessons Learned:
The EMT has just enough truth to gain some credibility but not enough to be useful. The problem is the theory discounts human nature; emotions, fear and greed. People have different perspectives, perceptions of the future and different abilities to analyze impacts that ultimately drive the markets. Even if it were true; it assumes everyone knows exactly what to do with the information they have and are capable of acting on it immediately in a totally rationale manner. Does that sound like the real world to you? This just doesn’t always happen in the world where I live. Further, how would this theory explain the long success of Warren Buffett and many other successful long term investors?
Another lesson learned was that no one cares more about your money than you do. Relying on Wall Street’s advice, often based on efficient market theory, only led to disappointment because there are just too many other influences on how our money is handled by others. Influences like generating fees and commissions before our longer term well-being is fully considered. Don’t get me wrong, there are many excellent money managers and advisors out there but most of the good ones don’t want to fuss with us “retail” investors.
Eventually by studying successful investors and learning from my own mistakes the merits of value investing over the long term became apparent. After becoming a value investor and my own money manager, the results became better. Sure I still make mistakes but on average, I’ve been fortunate in getting more right than wrong, and end up coming out ahead. That led to a third lesson, never stop learning.